Use command words such as identify, explain, analyse, evaluate, discuss, recommend and justify in business responses.

Direct answer

A 10% price increase is likely to reduce the quantity demanded because customers perceive the product as more expensive. The manufacturer may experience a drop in sales volume, which could lower total revenue if the price elasticity of demand is greater than one. However, the higher unit price could partially offset the volume loss, potentially stabilising or even increasing profit if the cost structure is largely fixed. The overall effect depends on the price elasticity of the product and the proportion of fixed versus variable costs. If the product is highly elastic, the revenue loss will be significant and profit will fall. If it is inelastic, the revenue may remain stable and profit could improve.

How it works

The answer outlines a cause‑and‑effect chain: price rise → demand drop → volume loss → revenue change, then links to cost structure and elasticity to justify the final profit outcome.